The story so far: The Supreme Court on October 16 referred the challenge to the validity of the electoral bonds scheme which facilitates anonymous donations to political parties to a Constitution Bench of five judges. A Bench led by the Chief Justice of India (CJI) D.Y. Chandrachud and also comprising Justices Sanjiv Khanna, B.R. Gavai, J.B. Pardiwala, and Manoj Misra is set to hear final arguments in the case on October 31 after a gap of more than two years, as the last effective hearing took place in March 2021. The case has been pending in the Supreme Court for over eight years now and its outcome is expected to have a significant bearing on the Lok Sabha elections scheduled to take place next year.
Underscoring why the matter necessitated the reference to a larger bench, a Bench led by the Chief Justice of India (CJI) observed — “In view of the importance of the issue which is raised and having due regard to the provisions of Article 145(3) of the Constitution, we are of the considered view that the batch of petitions be listed before a Bench of at least five-Judges.” Article 145(3) stipulates that cases that involve a substantial question of law relating to the interpretation of the Constitution should be heard by a bench of at least five judges.
In the wake of this development, The Hindu looks at the contentious issues surrounding the legality of the electoral bonds scheme.
What are electoral bonds?
Electoral bonds are money instruments like promissory notes that can be bought by companies and individuals in India from authorised branches of the State Bank of India (SBI). Such bonds are sold in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh, and ₹1 crore and can be bought through a KYC-compliant account and donated to a political party, which can then encash them. The name and other details of the donor are not entered on the instrument and thus electoral bonds are, in effect, anonymous. There is also no cap on the number of electoral bonds that a person or company can purchase.
The electoral bonds scheme was first introduced by former Finance Minister Arun Jaitley during the 2017 budget session, framed as an initiative to ‘cleanse the system of political funding in the country’ and make political donations transparent. It was launched through a notification on January 2, 2018, and was preceded by amendments to four legislations—the Representation of the People Act, 1951, (RP Act), the Companies Act, 2013, the Income Tax Act, 1961, and the Foreign Contributions Regulation Act, 2010 (FCRA)—through the Finance Acts of 2016 and 2017. Prior to the introduction of the scheme, political parties were required to make all donations above ₹ 20,000 public, and no corporate company was allowed to make donations amounting to more than 10% of their total revenue.
Every political party registered under Section 29A of the RP Act which secured at least 1% of the votes polled in the most recent Lok Sabha or State elections is allotted a verified account by the Election Commission of India (ECI) in which the bond amounts can be deposited within 15 days of their issue. If a party does not encash any bonds within this period, the SBI deposits them into the Prime Minister’s Relief Fund. The bonds are usually made available for purchase for a period of ten days each at the beginning of every quarter, i.e. in January, April, July, and October, besides an additional 30-day period specified by the Central Government during Lok Sabha election years.
According to an analysis by the Association of Democratic Reforms (ADR), between 2016-17 and 2021-22, the seven national and 24 regional parties in the country received a total donation of ₹9,188.35 crore from electoral bonds out of which the BJP’s share was ₹5,271.9751 crore, while all other national parties together amassed ₹1,783.9331 crore.
Why is the scheme facing a challenge in the Supreme Court?
Two petitions have been filed in the Supreme Court challenging the scheme — one jointly filed in 2017 by ADR and the non-profit organisation Common Cause and another filed in 2018 by the Communist Party of India (Marxist). The petitions contend that the scheme opens the “floodgates” to unlimited political donations and anonymous funding of political parties by Indian and foreign companies, thereby legitimising electoral corruption on a huge scale. They also highlighted that the scheme’s anonymity violates a citizen’s ‘right to know,’ which prior Supreme Court judgments have held to be a facet of the freedom of speech and expression under Article 19(1)(a) of the Constitution.
The pleas also stated that the amendment to the FCRA which permitted foreign companies with subsidiaries in India to fund Indian political parties would expose “Indian politics and democracy to international lobbyists” having their own agendas. Similarly, they objected to amendments to the Companies Act, 2013 which exempted companies from divulging details of political contributions in their annual profit and loss accounts, saying that this would increase opacity in political funding and promote the extension of undue benefits to such companies by political parties.
Section 29C of the RP Act had been amended to exempt political parties from informing the ECI about the details of contributions made to them through electoral bonds — this, the petitioners argued, would adversely impact transparency in the electoral process and make it difficult to ascertain whether donations were received illegally from companies or foreign sources.
All the amendments to key statutes to ensure the scheme’s implementation were done through the passage of the Finance Acts of 2016 and 2017 as Money Bills under Article 110 of the Constitution — which the Rajya Sabha has no power to reject or amend. This was allegedly to circumvent the scrutiny of the Rajya Sabha, where the ruling Bharatiya Janata Party does not enjoy a majority. An investigation conducted by HuffPost India revealed that the Ministry of Law and Justice had approved the government’s strategy of bypassing the Rajya Sabha, despite placing it on record that the scheme may not be considered a Money Bill in a strict sense and urging the government to ‘avoid considering this practice as a precedent.’
Weeks ahead of the Gujarat and Himachal Pradesh assembly polls, the Ministry of Finance on November 7 last year issued a notification amending the scheme to provide an additional 15 days for the sale of electoral bonds in years when States and Union Territories with a legislature have polls. Relying on documents obtained under the Right To Information Act (RTI), ADR filed a supplementary affidavit in December last year pointing out that this amendment was carried out after overruling objections raised by certain officials of the Ministry of Finance and the Ministry of Law and Justice. Subordinate officials expressed reservations, saying that the matter was sub-judice and since the Model Code of Conduct was in force, a clearance from the ECI should be sought.
What are the concerns raised by the ECI?
In an affidavit filed before the Supreme Court in 2019, the ECI said that electoral bonds would wreck transparency in political funding and invite foreign corporate powers to impact Indian politics. It also warned that the amendments brought about to key legislations would open up the possibility of shell companies set up for the sole purpose of making donations to political parties, with no other business consequence or disbursable profit. It also pointed out that the amendments virtually made the ECI guidelines of August 29, 2014 redundant — these require political parties to file reports on contributions received, audited annual accounts, and election expenditure statements.
The Commission also said that it had cautioned the Ministry of Law and Justice against these amendments in May 2017 and annexed letters written to the Law Ministry along with its affidavit. It underscored the importance of ensuring that donations received by political parties are declared for better transparency and accountability in the election process. The ECI opposed the amendment to the RP Act that permitted political parties to skip recording donations received through electoral bonds, terming it a retrograde step as far as transparency of donations was concerned and calling for its withdrawal. It also urged the Ministry to ensure that only profitable companies with a proven track record are permitted to make political donations.
RBI objections
The plea filed by ADR also noted how the Reserve Bank of India (RBI) had repeatedly warned about its potential to increase black money circulation, money laundering, cross-border counterfeiting, and forgery. Terming electoral bonds ‘opaque financial instruments’, the RBI pointed out that since the bonds are transferable any number of times like currency, their inherent anonymity can be exploited for money laundering. “While the person/entity buying the bearer bond will be as per Know Your Customer parameters, the identities of the intervening persons/entities will not be known. Thus, the principles and the spirit of the Prevention of Money Laundering Act (PMLA) 2002 get affected,” said the RBI Chief General Manager in a letter to the Joint Secretary of the Finance Ministry on January 30, 2017.
The RBI added that if the intention of the government was to ensure that political funding is routed through formal banking channels so as to flush out black money, the same could be achieved through “a normal cheque, demand draft or any electronic or digital mode of payment.”
However, the then Revenue Secretary, Hasmukh Adhia swiftly rejected such apprehensions, saying in a letter that the RBI “has not understood the proposed mechanism of having pre-paid instruments for the purpose of keeping the identity of the donor secret, while ensuring the donation is made only out of fully tax-paid money of a person.”
How has the government defended the scheme?
The government has said that electoral bonds were introduced to promote transparency in funding and donations received by political parties. “They [bonds] can be encashed by an eligible political party only through their accounts with authorised banks. The bonds do not have the name of the donor or the receiving political party and only carry unique hidden alphanumeric serial numbers as an in-built security feature,” the 21-page affidavit read.
The government said that the scheme envisages building a transparent system of acquiring bonds with a validated KYC and an audit trail. It further said that a limited window and a very short maturity period would make misuse improbable. Objecting to judicial review of policy decisions, the government said that the scheme was a part of its larger policy of fighting black money and encouraging a cashless economy.
Emphasising that the electoral bond scheme is ‘transparent’ and does not permit any black money to be funneled through, Solicitor General (SG) Tushar Mehta, appearing for the Central government, submitted before a Bench comprising Justices BR Gavai and BV Nagarathna in October last year that ”the methodology of receiving money is absolutely transparent… It is impossible to get any black or unaccounted money in… To say that this (electoral bonds scheme) affects democracy may not hold water.”
On Sunday, ahead of the court’s hearing, Attorney General R Venkataramani through written submissions said that the right of citizens to be aware of candidates’ criminal antecedents cannot be extrapolated to mean that they have the right to information regarding the funding of political parties. Reiterating objections to judicial review, he contended that the Court “cannot be permitted to scan State policies for the purpose of suggesting better or different prescriptions.” Highlighting that the scheme promotes the contribution of clean money and adherence to tax obligations, he opined that scrutinising a new law must be left within the purview of the public and parliamentary debates in consonance with the doctrine of separation of powers.
What has the Supreme Court said so far?
Before the 2019 Lok Sabha elections, the petitioners had approached the Supreme Court seeking either a stay on the issuance of electoral bonds or a disclosure of the names of the donors to ensure transparency in the election process. Passing an interim order on April 12, 2019, a Bench led by former CJI Ranjan Gogoi refused to stay the operation of the scheme, saying that it was a ‘weighty’ issue having a ‘tremendous bearing on the sanctity of the electoral process in the country’ and thus required an in-depth hearing. It, however, directed all political parties to provide full information on each and every political donor and contributions made so far through electoral bonds to the ECI in a ‘sealed cover.’
In March 2021, the petitioners again sought a stay on the fresh sale of electoral bonds ahead of assembly elections in crucial States like West Bengal, Kerala, Tamil Nadu, Assam, and Puducherry. However, a bench led by former CJI SA Bobde declined the plea saying that the sale of bonds in 2018, 2019, and 2020 had happened ‘without any impediment’ and that certain safeguards had already been provided in the court’s earlier interim order. It also observed that just a little effort was required to pierce the veil of anonymity around electoral bonds and that money donated by companies could easily be traced online on the Ministry of Corporate Affairs website.
In January this year, a Bench led by CJI D.Y. Chandrachud divided the batch of petitions into three sets — the challenge to the scheme; bringing political parties within the ambit of the RTI; and the challenge to the amendments in the Foreign Contribution Regulation Act— and decided to hear them separately. More recently, in March, the petitioners requested the CJI to refer the matter to a Constitution Bench saying that it required an authoritative pronouncement owing to its impact on the democratic polity and funding of political parties.
In a hearing on October 10, the court said that it would not wade into the legal question concerning the passage of the scheme as a ‘Money Bill’ since the issue is already pending adjudication before a seven-judge Constitution Bench. Instead, the final arguments would primarily focus on two issues — the legalisation of anonymous donations to political parties and the violation of citizens’ right to information about the funding of political parties. Advocate Prashant Bhushan, appearing on behalf of ADR, also urged the court to decide the matter expeditiously, preferably before the Lok Sabha election in 2024. In their preliminary submissions, the petitioners said that the scheme has opened the floodgates to unregulated political donations owing to the cloak of anonymity surrounding such political funding.
